House committee hears testimony on bill to make overtime pay deductible for Pennsylvania taxpayers

House Bill 1357, which would let Pennsylvania workers deduct state income taxes paid on overtime wages, drew testimony and questions at a Feb. 5 public hearing of the House Finance Committee.

The bill’s prime sponsor, Representative Morgan Cephas, said the measure would “put more money in the pockets of working families across Pennsylvania” by allowing workers to deduct taxes paid on overtime when they file their state return. “Close to 25% of Pennsylvanians are relying on overtime to support their quality of life,” Cephas said, and the deduction, she testified, would “promote overall economic mobility for low income and middle income workers.”

Supporters told the committee the change could help employers retain staff and encourage workers to accept additional hours. Regina Harrison, president and CEO of the African American Chamber of Commerce of Pennsylvania, New Jersey, and Delaware, testified that “for many hourly employees, overtime is not a luxury. It's essential.” Malik Brown, president and CEO of Graduate Philadelphia, said the deduction would aid working adult learners, noting his organization’s clients are largely low-income and working parents who use extra hours to balance living costs and education.

The bill as presented would work through the existing withholding and filing system: employers would continue to withhold personal income tax on overtime pay during the year, and employees would claim a deduction for that overtime on their state return the following April. The sponsor said the proposal was structured to avoid additional payroll or administrative burdens on employers and that employers would “not be allowed to reduce or deny the availability of overtime hours as a result of the deduction,” per the bill text overview provided to the committee.

Witnesses offered numeric examples and program context. Representative Cephas' office provided an illustrative tax impact: $10,000 in overtime would reduce a filer’s state tax by about $307; $20,000 would reduce it by about $614. Regina Harrison told the committee that fewer than 4% of Black‑owned businesses in Pennsylvania have employees and urged that implementation minimize new reporting requirements for small firms. Malik Brown said Graduate Philadelphia’s client base is roughly 80% low income, 80% African American and 78% working mothers and argued that untaxed overtime would make it easier for adult learners to stay enrolled and complete degrees.

Committee members asked several implementation and policy questions. Representative Leslie Rossi described experience in her district where reductions in overtime pay led some workers to apply for unemployment insurance when hours fell, and she pressed sponsors to consider that possibility. Another member raised academic critiques that segmenting income in the tax code can create perverse incentives; Cephas said narrower caps or income limits could be considered in future drafts. Committee members also asked whether employees could refuse overtime without penalty; the sponsor said that question was not addressed in the bill as written.

The transcript and testimony cited other jurisdictions and analyses: the sponsor noted at least 15 other states have considered similar measures and that Alabama enacted a comparable law in 2023; witnesses referenced federal definitions of overtime as set by federal law and the Pennsylvania Department of Labor and Industry’s list of high‑priority occupations when discussing workforce shortages. No vote or formal committee action occurred at the hearing.

The hearing record shows the committee received testimony focused on potential household and workforce benefits for hourly workers and on administrative details and possible side effects such as unemployment filings and fiscal cost to the Commonwealth. The committee indicated follow-up questions and potential adjustments to the bill’s scope but took no formal action at the session’s close.